The Digital Skeptic: Facebook Has Many Mouths to Feed in Global Market

Jonathan Blum

Thursday

Nov 29, 2012 at 12:01 AMNov 29, 2012 at 8:02 AM

Facebook offers services that demand mobile payments, but there are middleman cutting into the profits.

With additional reporting by Apurva Chaudhary in Mumbai

NEW YORK (TheStreet) -- It's never easy getting paid. And in this grinding global mobile economy, it's especially not easy for Facebook (:FB) to get paid.

This year, the social media giant announced it would offer other countries, including India, the ability to pay to promote a post. Already well-known to American users, pay-to-promote, at least when I tried it, is where Facebookers cough up a couple of bucks -- in my case, $8 -- to get more folks to see one's Facebook stuff.

Life-changing it was not, but at least I paid for something on Facebook. And investors are betting that between these and other paying services some real money will really flow Mark Zuckerberg's way. Overseas markets such as India look particularly lucrative. There are 60 million some-odd Facebookers in India, according to SocialBakers, a Czech Republic-based social media search measurement firm, and these users live in a country with $1.8 trillion in GDP for 2011 that should grow in the 7% range this year, according to the World Bank.

It all seems so rosy, but of course it's the digital age. So it's not. Break down the nitty-gritty of Facebook offering -- and getting payment for -- a service in an emerging economy such as India's and it gets very clear very fast that Mr. Zuckerberg will have a lot of hungry mouths to feed before he ever sees a dime.

It's crowded in here
At first blush, how Facebook does business in India is how it does business here in the U.S. Harish Krishnan, who blogs about social media for BlogAdda, one of India's largest blogger communities, and who uses Facebook heavily to market and communicate from Mumbai, explained via email to me how Facebook's paid service works in his home country.

Users are prompted -- just like they are in the U.S. -- with an offer to promote a post for a fee. To explain, he included a screenshot of what an average Indian Facebook user, in this case Ravi Sethia, faced when trying to pay to promote a post on India's Facebook service back in September.

What happens, Krishnan told me, is that as services such as Facebook try to charge fees, something very un-American happens: All sorts of third parties flock in seeking a cut of the action.

"A lot of mobile carriers have included Facebook as a value-added service to incite more users," he said. "But there is a difference in the charges based on the mode of payment."

You can see Krishnan's point right there at the bottom of the screenshot he sent me; users can either pay 99 rupees to promote a post if that cost is baked into a users' mobile phone charges; or 30 cents -- that's just 16 rupees -- if they use PayPal, a credit card or other service such as Western Union (:WU) to pay Facebook.

Is this some sort of scam? I wondered. Absolutely not, I was told.

What's happening is most Facebook users in India are mobile users. The Telecom Regulatory Authority of India says a full 908 million Indians, out of a total population of 1.2 billion, rely on their mobile phones to communicate, compared with 33 million with wireline access.

The problem is, of course, mobile phones don't take cash. They must rely on electronic means to top up and, in turn, a networked banking system that essentially does not exist in India. According to the New America Foundation, despite a major government-sponsored effort to promote a modern bank infrastructure, only half of Indians have access to banking facilities. Indians rely mostly on a hodgepodge of third-party methods to buy stuff with phones. They include operations such as Obopay, YES Bank, Paymate and Paytm, just to name a few.

Each of which seek a cut of every dollar they touch -- which makes it darn tough for Indian consumers to do business with Web-based services such as Facebook.

When Apurva Chaudhary, who works with me from Mumbai, tested what it would take to order a promoted post, she was faced with the same choice of 99 rupees for a cellphone-based payment or 19 rupees if she paid with something called MOLpoints. This is yet another payment system created by a Malaysia-based commerce company called MOL -- which is used heavily by online gamers, among others.

For MOL, Facebook is a nonentity. And it showed.

As hard as she tried to get MOL to take her her 19 rupees to give to Facebook, it would not work. Apparently, her service provider was not properly supported. Customer support did not return calls. Carriers for customer service and public relations did not return calls. There is no support number for Facebook in India.

The wrong side of the 80/20 split
This leads investors smack dab into yet more dark territory for global Web-based services. Sure, Facebook hopes it will do business in fast-growing markets such as India. The problem is, the infrastructure it relies on here in the U.S. is not in place overseas. That means almost wherever it turns, third parties must enable functionality, which take a fat piece of the action and raises the complexity. This all puts Facebook's already razor-thin margins even more at risk.

Sure Facebook figuring out how to get paid here in the US will be tough. But how this company figures out how to get paid in disorganized global markets will be that much tougher.